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Take my car, please

Even in crisis, Germans know a good deal when they see one.

A Trabant 601 car produced at the former East German VEB Sachsenring Autowerke Zwickau parked in a Berlin street Aug. 11, 2007. (Fabrizio Bensch/Reuters)

Across Germany, car buyers are rushing to the nearest showroom. New-car registrations soared by almost 40 percent last month.

That surge comes just as Europe’s largest economy has been battered by the slide in global demand, with February industrial production falling 20 percent from a year ago, and unemployment on the rise. Germany's gross domestic product, meanwhile, is expected to shrink this year by 4.5 to 7 percent.

But even in a world economic crisis, this car-loving nation knows when to say yes to a government hand-out.

In January the German government launched a car scrapping bonus scheme, which encourages consumers to trade in cars nine years or older for a more energy efficient new vehicle by giving each buyer 2,500 euros ($3,200).

Initially the government allocated some $2 billion to the scrapping scheme but it was not prepared for the consumer’s response: By the beginning of April, 1.2 million Germany had applied for the bonus — twice as many as the government could pay for.

So bowing to pressure from carmakers and consumers, Berlin has more than tripled the size of the scheme to 5 billion euros ($6.5) until the end of this year, enough to cover up to 2 million new cars.

“The extra cash was Germany’s contribution to offset the fall in exports through more domestic demand,” says Karl-Theodor zu Guttenberg, Germany's economics minister. It’s also an unspoken admission by Berlin that its fiscal stimulus of $80 billion over two years might not be enough to stem the economic downturn.

So far the bonus has helped mainly the small car sector, especially Volkswagen, Opel (GM’s German subsidiary) Renault and Ford.

But luxury carmaker Audi has also profited. “We’ve sold 13,000 more cars so far because of the scrapping bonus,” said Audi spokesman Juergen de Graeve. "The scrapping bonus is like a vitamin boost for the whole industry."

With every seventh job in Germany linked to the automotive industry, the measure seems popular.

But not all in the industry love it.